Acknowledgment regarding purchaser’s trading activity: Overview, definition, and example
What is an acknowledgment regarding purchaser’s trading activity?
An acknowledgment regarding purchaser’s trading activity is a contractual provision in which a seller or issuer of securities confirms that they do not have control over, nor responsibility for, the purchaser’s trading decisions. This clause protects the seller from liability related to the purchaser’s investment strategies, market activity, or financial outcomes after acquiring securities.
For example, in a private placement of securities, the issuing company may require the investor to acknowledge that any future buying or selling of the securities is at the investor’s sole discretion and risk.
Why is an acknowledgment regarding purchaser’s trading activity important?
This acknowledgment is important because it prevents disputes over stock price fluctuations, insider trading concerns, or allegations of misrepresentation. By clarifying that the issuer or seller is not responsible for the purchaser’s trading activity, the clause reduces the risk of legal claims related to investment losses.
For securities issuers, this provision ensures that once the securities are sold, the purchaser bears full responsibility for their investment decisions, including any financial gains or losses resulting from market fluctuations.
Understanding an acknowledgment regarding purchaser’s trading activity through an example
Imagine a company conducting a private securities offering. An institutional investor purchases a large number of shares but later sells them at a lower price due to market volatility. If the investor tries to claim that the company should have advised them on when to sell, the acknowledgment clause protects the company by confirming that the investor made independent trading decisions.
Similarly, in a stock purchase agreement, a hedge fund acquiring shares in a company may be required to acknowledge that their trading activity is not influenced or controlled by the company. This ensures the fund cannot later argue that the company misled them about future stock performance.
An example of an acknowledgment regarding purchaser’s trading activity clause
Here’s how this clause might appear in a securities agreement:
"The Purchaser acknowledges and agrees that all trading decisions regarding the Securities purchased under this Agreement shall be made solely by the Purchaser at its own discretion. The Issuer shall have no responsibility or liability for any trading activity, investment decisions, or market losses incurred by the Purchaser following the purchase of the Securities."
Conclusion
An acknowledgment regarding purchaser’s trading activity protects sellers and issuers of securities from liability related to the buyer’s trading decisions. It ensures that investors take full responsibility for their market activity and prevents disputes over financial outcomes.
By including this clause in securities agreements, issuers and sellers can safeguard themselves from legal claims, maintain compliance with securities laws, and reinforce that investment decisions rest solely with the purchaser.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.